Understanding the challenge
Retirement. It’s a phase of life that brings with it unique challenges, particularly when it comes to healthcare. In the U.S., the average lifespan is 79 years (compared to the global average of 73 years).1 Longer life expectancy means Americans need to plan for a potentially longer retirement period, which can significantly impact financial strategies.
Expected routine healthcare costs for those over age 65 average $2,700 per year and frequently escalate to $6,500 annually for ages 65-74, $11,500 for ages 75-84, and $20,000 for those 85 and older.2 That could add up to more than $400,000 in retirement. Many people over 65 will also want a long-term care (LTC) policy, which can cost as much as $1,500 annually (Medicaid and most health insurers don’t cover long-term care).3
New research from the Center for Retirement Research at Boston College explores the medical and LTC risks retirees face, each with distinct implications for retirement planning. Medical risks include routine medical care, prescription drugs, and unexpected medical emergencies, while LTC risks encompass the need for extended care services such as home care, assisted living, or nursing home care.
One of the primary challenges is the unpredictability of healthcare costs, which can range from a sudden illness to an accident requiring immediate and extensive medical attention. In these cases, large medical bills can follow and significantly impact financial stability. Rising premiums and prescription drug costs, as well as unexpected medical needs can create financial stress and uncertainty for retirees. Additionally, many retirees underestimate their healthcare needs and are often unaware of the potential costs, leading to inadequate planning and preparation.
Meeting the need
The retirement window, a critical period we’ve identified for retirement planning and decision-making, is when many people begin to realize the potential financial burden of healthcare. This window, after all, is when someone will likely transition from their employer-sponsored health insurance to Medicare, which may not cover all medical expenses. By considering longevity risk, diversifying income sources, maintaining spending flexibility, and taking advantage of catch-up savings, retirees can help ensure they can cover healthcare expenses throughout their retirement years.
To address the challenge of healthcare risks in retirement, awareness and education is critical. Boston College‘s research suggests that there’s a significant gap when it comes to helping retirees understand healthcare costs and available coverage options. Financial advisors can play a role in addressing this gap through educational initiatives and improved communication.
Financial advisors, employers and retirees alike play a critical role in navigating the complexities of healthcare risks and coverage options. Boston College’s research outlines several strategies:
1. Understand the importance of early planning: Planning for healthcare costs well before retirement - estimating potential expenses, exploring insurance options, setting aside dedicated savings for healthcare needs - could help manage expectations and relieve finance-related stress.
2. Consider a guaranteed retirement income solution: Employer-based retirement plans with a guaranteed income solution can provide retirees with a reliable stream of income to help cover healthcare expenses, both expected and unexpected.
3. Review long-term care insurance: Look into the benefits of long-term care insurance and how it can protect against the high costs of extended care services. This insurance can help cover expenses for home care, assisted living, and nursing home care, providing financial security and peace of mind.
4. Encourage preventive care and healthy living: Maintaining good health and well-being could lower the likelihood of costly medical interventions during retirement.
Acknowledging healthcare costs and planning early - including knowing the risks, coverage areas and best health practices - is paramount for retirees. For financial advisors, implementing the strategies laid out above can help clients be better prepared for their retirement.
1 Social Security Administration, Actuarial Life Table, 2024
2 RBC Wealth Management & Bureau of Labor Statistics, The real cost of health care in retirement, 2024
3 National Council on Aging, How Much Does Long-Term Care Insurance Cost and Is It Worth It? 2025
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